The Dow Jones Industrial Average fell 28.6 points, or 0.23%, to 12542, the S&P 500 dipped 2.2 points, or 0.16%, to 1353 and the Nasdaq Composite slumped 9.9 points, or 0.35%, to 2837.

The markets took a pounding on Wednesday, knocking the Dow and the Nasdaq back to June levels. The Nasdaq now sits in correction territory. Meanwhile, the broader S&P 500 is trading at its lowest level since July and is within 35 points of a correction.

Worries about the fiscal cliff and mounting tensions in the Middle East dominated the headlines yesterday. Both of those topics still commanded a strong focus across trading desks today, but a round of fresh data on the world's biggest economies and corporate earnings reports may also help define Wall Street's trajectory.

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New claims for unemployment benefits rose last week to 439,000 -- the highest level since April 2011 -- from an upwardly revised 361,000 the week prior. Claims were expected to rise to 375,000 from an initially reported 355,000. The Labor Department said Hurricane Sandy likely distorted the claims number, but the level of the distortion was not immediately clear.

"The positive effect may persist for a couple of weeks further, given prolonged power outages and closures in some areas, but ultimately will prove temporary, and we would expect claims to fall back in time and resume the broadly sideways trend evident prior to the hurricane," Peter Newland, an economist at Barclays wrote in a note to clients following the report.

Prices at the retail level climbed 0.1% in October from September, matching expectations. Excluding the food and energy components, prices were up 0.2%, a slightly bigger gain the 0.1% economists expected.

The Philadelphia Federal Reserve's gauge of manufacturing activity in the mid-Atlantic region fell to -10.7 in November from 5.7 in October. A reading of 2 was expected. The New York Federal Reserve's regional manufacturing gauge rose to -5.22 in November from -6.16 in October, coming in better than expectations of a -6.7 reading. Readings above zero point to expansion, while those below indicate contraction.

On the global front, the eurozone's economy contracted at a quarter-to-quarter rate of 0.1% in the third quarter, the second-straight contraction. That means the 17-member currency bloc is now in its second recession since 2009 as the three-year-old debt crisis weighs heavily on output. The bloc's two biggest economies, Germany and France, managed to post tepid expansions.

Tensions between Israel and Palestine continued ratcheting up. On Wednesday Israel began a campaign of rocket attacks into Palestine as retribution for rocket attacks into Israel. One of the attacks killed a top Hamas military commander, and others were aimed at Hamas military installations. Hamas has pledged retaliation, and other regional and world powers have been forced to make statements, causing concerns about the potential for another war in the Middle East.

Energy futures were mixed after a strong showing on Wednesday. The benchmark crude oil contract declined 87 cents, or 1%, to $85.45 a barrel. Wholesale New York Harbor gasoline climbed 0.64% to $2.696 a gallon. Gold dropped $16.30, or 0.94%, to $1,714 a troy ounce.

In corporate news, BP (BP) said it has reached an agreement with the U.S. government to settle all federal criminal charges and claims by the SEC against the company stemming from the Deepwater Horizon oil spill and response. The oil giant said it will pay an aggregate amount of roughly $4.5 billion over six years as part of the settlement and plead guilty to 11 felony counts. The settlement is subject to court approval.

Wal-Mart (WMT) posted a third-quarter profit of $1.08 a share, topping expectations by a penny. Revenues of $113.2 billion came in short of Wall Street’s forecast of $114.96 billion. The world’s largest retailer also tightened its full-year profit guidance to a range of $4.88 to $4.93 a share.

Foreign Markets

The Euro Stoxx 50 dipped 0.27% to 2466, the English FTSE 100 slumped 0.73% to 5680 and the German DAX slipped 0.77% to 7047.

In Asia, the Japanese Nikkei 225 rallied 1.9% to 8830 and the Chinese Hang Seng tumbled 1.6% to 21109.